Foster v. Lincoln | CaseSearch

Court

Circuit Court, D. Vermont

Decided

May 19, 1896

Judge

WHEELER, District Judge

Posture

Suit brought by receiver to recover assessment from shareholders

Overview

Decree for the plaintiff. Benjamin F. Lincoln (through his personal representatives) and his five children are liable for the assessment on the Deming bank stock.

Case summary

This case involves shareholder liability under national banking laws. Benjamin F. Lincoln, president of the National Bank of Lyndon, Vermont, held stock in the First National Bank of Deming, New Mexico. On September 15, 1891, he learned through a telegram that the Deming bank urgently needed $5,000. Six days later, he transferred his Deming bank stock without consideration to his five children, including minors and a married woman. The Deming bank was insolvent at the time and failed on February 8, 1892. The receiver, Foster, brought suit to recover an 82% assessment laid by the comptroller of the currency. The court held that Lincoln made the transfer in contemplation of shareholder liability after having warning of the bank's financial trouble. Both Lincoln (through his estate) and his children were held liable—Lincoln because the voluntary transfer was voidable as to creditors, and the children because they assumed liability by becoming shareholders. The court entered a decree for the plaintiff.

Abstract

The bank president transferred his stock in an insolvent national bank to his children, including minors and a married woman, shortly after receiving warning of the bank's financial distress and without consideration. The court held the transfer voidable as to creditors, rendering the president liable through his estate and the children liable upon assuming shareholder status. A decree was entered holding them responsible for the comptroller's assessment on the stock.

Opinion of the court

Majority
opinionWHEELER, District Judge

Shareholders of national banks are individually responsible for contracts, debts, and engagements of the association under Rev. St. U.S. § 5151
This liability attaches when the bank's obligations are entered into and cannot be impaired by transfer
Lincoln's transfer was voluntary and made after he had warning of the bank's financial straits, so it was made in contemplation of liability
The transfer is voidable at the instance of creditors represented by the receiver
Transferees succeed to the liabilities of the prior holder when they become stockholders
Liability survives to personal representatives under Rev. St. U.S. § 5152

Jurisdiction

not challenged

Subject matter

Federal question under national bank law

Jurisdictional facts

Case involves interpretation of U.S. Revised Statutes § 5151 and § 5152 governing national bank shareholder liability

Procedural posture

Posture at trial

Suit brought by receiver to recover assessment from shareholders

Subsequent history

Petition for rehearing

not filed

Rehearing en banc

not filed

Petition for certiorari

not filed

Legal categories

Business

Case record

Full case name

FOSTER v. LINCOLN et al.

Court

Circuit Court, D. Vermont

Decided

May 19, 1896

Opinion author

WHEELER, District Judge

Opinion type

published

Precedential status

precedential

Judges on panel

WHEELER, District Judge

Issues & holdings

Holdings of the court

Whether Benjamin F. Lincoln is liable for assessment on Deming bank stock after transferring it to his children

Lincoln is liable because the transfer was made in contemplation of shareholder liability after he had warning of the bank's financial straits

As a bank man, Lincoln must have known of shareholder liability under Rev. St. U.S. § 5151. He had warning from the telegram six days before the transfer. The transfer was voluntary without consideration. The statutes intend that liability should not be impaired by transfer, especially voluntary transfers. The transfer should be voidable at the instance of creditors represented by the receiver.

unanimousbinding precedent

Whether Lincoln's children (transferees) are liable for the assessment

The children are liable because liability was cast upon them by law when they became stockholders

Under national bank law, every person becoming a shareholder by transfer succeeds to all the rights and liabilities of the prior holder. No change shall be made which impairs the rights of existing creditors. The children became stockholders through the transfer and thus assumed the liability.

unanimousbinding precedent

Whether assets in hands of Lincoln's personal representatives are liable after his death

The assets in the hands of Lincoln's personal representatives are liable as he would have been

Under Rev. St. U.S. § 5152, liability survives to personal representatives.

unanimousbinding precedent

Statutory interpretation

Statute

Rev. St. U.S. § 5151

Question

Whether shareholder liability can be avoided by transfer of stock

Court's reading

Liability attaches when bank's obligations are entered into and cannot be impaired by transfer, especially voluntary transfers

Canons applied

Plain meaningProtection of creditors

no legislative history

Statute

Rev. St. U.S. § 5152

Question

Whether shareholder liability survives death

Court's reading

Liability survives to personal representatives

Canons applied

Plain meaning

no legislative history

Burden of proof

Prosecution burden

Preponderance of evidence (civil case)

Burden met

true

Timeline

Events

1,708

Days, incident to ruling

Sep 15, 1891 — May 19, 1896

Span

Sep 15, 1891factual eventcited in opinion

Telegram came to Lyndon bank urgently calling for $5,000 to be sent by telegraph in aid of Deming bank

Outcome: Lincoln became aware of Deming bank's financial straits

Provided warning of bank's insolvency six days before stock transfer

Whether transfer was made in contemplation of liability

Benjamin F. Lincoln · National Bank of Lyndon Lyndon, Vermont not applicable

Sep 21, 1891factual eventcited in opinion

Lincoln transferred his Deming bank stock in equal parts to his five children without consideration

Outcome: Stock ownership transferred to children

Voluntary transfer made after warning of bank's financial trouble

Validity of transfer regarding shareholder liability

Benjamin F. Lincoln · Lincoln's five children not applicable

Feb 8, 1892factual eventcited in opinion

First National Bank of Deming failed

Outcome: Bank became insolvent

Triggered assessment on shareholders

Shareholder liability for assessment

First National Bank of Deming Deming, New Mexico not applicable

May 19, 1896rulingcited in opinion

Circuit Court issued decree for plaintiff, holding Lincoln and his children liable for assessment

Outcome: Decree for plaintiff

Established liability for voluntary transfers made in contemplation of bank insolvency

All issues regarding shareholder liability

WHEELER, District Judge · Foster (receiver) · Lincoln's personal representatives Circuit Court, D. Vermont trial court

Facts & evidence

Incident

Date

1891-09-15 to 1892-02-08

Location

First National Bank of Deming, New Mexico and National Bank of Lyndon, Vermont

Key facts

7 facts

Benjamin F. Lincoln was president of National Bank of Lyndon, Vt. and held 25 shares in First National Bank of Deming, N.M.
On September 15, 1891, a telegram urgently called for $5,000 to be sent by telegraph to aid the Deming bank, which came to Lincoln's knowledge
On September 21, 1891, Lincoln transferred his Deming bank stock in equal parts to his five children without consideration
The children included one married woman, two minors, and all were irresponsible for assessments
The Deming bank was insolvent at the time of transfer with liabilities of about $150,000 to depositors and other banks
The Deming bank failed on February 8, 1892
Plaintiff Foster, as receiver, brought suit to recover an 82% assessment laid by the comptroller of the currency

Disputed questions

Whether Lincoln made the transfer in contemplation of shareholder liability

Procedural history

3 steps

Suit brought by receiver to recover assessment from shareholders
Case was ready for hearing when Benjamin F. Lincoln died
His personal representatives entered to defend

Evidence in the record

Direct

Testimony of Lincoln about contemplating giving property to children
Testimony of cashier about bank's insolvency

Testimonial

Lincoln's testimony about his intent
Cashier's testimony about bank's financial condition

Documentary

Telegram calling for $5,000
Stock transfer records

Circumstantial

Timing of transfer six days after urgent telegram
Voluntary nature of transfer without consideration

Objects of relevance

Bank stock certificatesTelegram demanding $5,000Bank books recording stock transfers

Policy considerations

Protection of bank creditors from shareholders avoiding liability through transfers
Maintaining integrity of national banking system

Authorities

Cited authorities (6)

Rev. St. U.S. § 5151

appliedquotedprecedent

Provides that shareholders of national banking associations shall be held individually responsible for all contracts, debts, and engagements of the association

Richmond v. Irons, 121 U.S. 27, 7 Sup. Ct. 788

followedprecedent

Cited for principle that shareholder liability attaches when the contracts, debts, and engagements of the bank are entered into

Witters v. Sowles, 32 Fed. 767

followedprecedent

Cited for same principle as Richmond v. Irons regarding when shareholder liability attaches

Johnston v. Laflin, 103 U.S. 804

followedquotedprecedent

Cited for principle that entry of transfer on bank books is necessary to protect seller against subsequent liability as stockholder

Bowden v. Johnson, 107 U.S. 251, 2 Sup. Ct. 246

appliedprecedent

Cited for principle that transfer should be voidable at instance of creditors

Rev. St. U.S. § 5152

appliedprecedent

Provides that liability survives to personal representatives after shareholder's death

Related cases (4)

Richmond v. Irons, 121 U.S. 27, 7 Sup. Ct. 788

precedent

Cited for principle that shareholder liability attaches when bank's obligations are entered into

Witters v. Sowles, 32 Fed. 767

precedent

Cited for same principle as Richmond v. Irons

Johnston v. Laflin, 103 U.S. 804

precedent

Cited for principle that entry of transfer on bank books protects seller against subsequent liability

Bowden v. Johnson, 107 U.S. 251, 2 Sup. Ct. 246

precedent

Cited for principle that transfer should be voidable at instance of creditors

Statutes

Rev. St. U.S. § 5151 (shareholder individual responsibility)
Rev. St. U.S. § 5152 (liability survives to personal representatives)

Standards & doctrines

Shareholder liability attaches when bank obligations are entered into
Transferees succeed to liabilities of prior holder
Transfers that impair creditor rights are voidable

Legal principles applied

Creditors have right to rely on responsibility of shareholders as shown by bank books
No change shall be made in articles that impairs rights of existing creditors
Entry of transfer on bank books protects seller against subsequent liability

Notable quotes

“The defendant Benjamin F. Lincoln appears to have been under liability to the creditors of the bank when this transfer was made.”

WHEELER, District Judge — Discussing timing of liability relative to transfer

Establishes that liability existed at time of transfer

“As a bank man he must have known of this liability, and he had warning of the straits of the bank by the telegram six days before the transfer.”

WHEELER, District Judge — Analyzing Lincoln's knowledge and intent

Supports finding that transfer was made in contemplation of liability

“The transfer should be so now at the instance of the creditors, represented by the receiver.”

WHEELER, District Judge — Applying voidability principle to this case

Applies precedent to allow receiver to challenge transfer

Index terms76

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Judges

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Procedural terms

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Entities and documentation

Legal actions

Action type

affirmed

Target

Plaintiff's claim for assessment recovery

Context

Court issued decree for plaintiff, holding defendants liable for assessment on bank stock

Scope

full

Disposition vote

unanimous

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